Be wary of deals for unlocking funds

People looking for a quick way to access money in locked-in retirement savings are targets for fraud warns the Financial Services Commission of Ontario.

Some companies are advertising their services to help people access their locked-in money in Registered Retirement Savings Plans, Life Income Funds (LIF), retirement income funds (LRIF) and retirement accounts (LIRA).

But anyone with proof of financial hardship can access these locked-in funds with the help of the commission’s staff.

Free services
“Companies claiming to be able to help you unlock funds for financial hardship are just charging an extra fee to fill out forms that are provided by FSCO,” says Dave Gordon, Deputy Superintendent of Pensions at FSCO.

“At FSCO, we have staff who can help people access their locked-in accounts if they meet the financial hardship criteria. While all successful applicants will pay a fee, there is no need for individuals to purchase assistance from one of these companies. Why should they pay twice to receive the same money?” says Gordon.

Other provinces have similar rules to Ontario.

Second scam
Another scainvolves so-called loans made with a locked-in account as collateral. Advertisements now appearing in newspapers claim to have found a loophole in the Income Tax Act that allows this.

A variation on this scam involves the purchase of shares in a private company using locked-in money. FSCO warns that these transactions are illegal.

Tax bills
Furthermore, taxpayers using these schemes may face large unexpected tax bills. Canada Customs and Revenue Agency says no loophole exists, so any money used for security for a loan or to purchase shares that don’t qualify under the Income Tax Act will become taxable.

As well, fees charged by these companies reduce the amount in locked-in retirement savings.

With files from June Yee, Financial Editor, CARPNews FiftyPlus.